Preparing Financially for a Divorce
No one plans for a divorce amid the happiness and excitement of getting married. And while a few high-income or well-prepared individuals may have a “Prenuptial Agreement” in place – most couples enter into a marriage with complete trust, and are simply not prepared for the difficult financial implications of a divorce down the road.
As an experienced Oakland County divorce lawyer, I can tell you that untangling two people’s money is almost always messy and difficult. For younger couples – even when crucial issues like custody and visitation are amicably decided – financial issues can often become quite hostile. And for older couples – with more wealth or assets to be divided – the stakes are very high in the eventual financial outcome of the divorce.
Long before the assets are divided and child support and/or spousal support (alimony) is awarded, a spouse should carefully prepare their finances for the divorce ahead. And while each specific divorce is unique, the following general tips can help point you in the right direction to get started understanding and planning your financial situation.
Only Get Financial Advice from Divorce Professionals
When friends, family and co-workers hear you are facing divorce they often want to “help” by offering unsolicited – and often inaccurate – advice. Similarly, advice you find online may be incorrect, or may only apply in a different state with different divorce laws.
Always consult with an Oakland County divorce lawyer before moving money, changing accounts or attempting to “protect” assets – to ensure that you are taking the best steps to financially protect (and not penalize) you in your divorce.
Track Household Expenses Before a Divorce
As soon as you believe that a divorce may be a possible outcome in your situation, start carefully tracking your household income and expenses. This is crucial to helping your attorney convince the Judge how to fairly split your money, property, and debts – and also award fair alimony and/or child support.
As an experienced Oakland County divorce attorney I have handled hundreds of divorces where one spouse (either husband or wife) knows little about the family finances and assets – including monthly expenses, a spouse’s income, how much is in the bank accounts, how much credit card debt is owed, or even what the mortgage or car note is.
Keep a record of the past months’ (and years if possible) household bills, utilities, groceries, clothing, maintenance, car notes, insurance, credit card debts, mortgage or rent, discretionary spending (such as entertainment), child care and anything else that your household spend money on.
Also look beyond the usual monthly expenses and include things like vacations, Christmas gifts, and unexpected one-time expenses like replacing your roof. Certified divorce financial advisors also encourage you to remember that circumstances that affect your budget change. For example, day care costs may increase if you go back to work, car insurance will skyrocket when your child turns 16, and college tuition costs will likely kick-in when they graduate from high school.
Gather Documentation Before Your Divorce
Gathering financial records will help you achieve the best divorce settlement, as well as assist you in budgeting going forward. But gathering these documents can be tedious and time-consuming – so an experienced divorce attorney will always advise you to start collecting these documents as early as possible
Remember if your name is on any accounts (banks, mortgages, credit cards, car notes), you have the right to receive paper statements and/or access these statements online. You can use your cell phone to photograph paper statements before your spouse gets them – and/or you can typically download your statements (as pdf files) online.
Financial Documents to Gather in a Divorce:
- Bank checking and savings account statements (at least the past year)
- Retirement account, 401K & IRA statements (current, if contributions haven’t changed)
- Any investment account statements (at least the past year)
- Loan statements, including: mortgage, car note(s), home, equity loans, personal loans etc. (past year)
- All credit card statements (for the past year)
- Both spouses’ recent pay stubs; or other proof of income such as automatic payroll deposits
- List of assets and debts brought into the marriage by each spouse
- List of assets and debts accumulated since marriage
- Income tax returns for both spouses for at least the past three years
Be Prepared for Resistance
Even in amicable divorces, things can get a little ugly when it comes to the finances. In some adversarial situations, one spouse might not release financial documents unless they’re legally forced to do so. In other situations a husband or wife may actually have taken steps to hide assets or financial information. (Read more about hiding assets here.)
Things can be especially difficult if one spouse controlled the household finances, and the other spouse was completely “out of the loop”. In many cases, gathering all of this paperwork before the divorce can decrease the likelihood of confrontation and/or the need to have your divorce attorney resort to court-ordered options.
Don’t Make Any Big Financial Decisions
Many divorcing g spouses are tempted to “get a jump” on the divorce by moving money to new accounts, or beneficiaries on retirement accounts or life insurance — but it’s best to wait to do these things to avoid being penalized.
The divorce proceedings will eventually determine all of your major financial changes – but if you make changes on your own prior to the divorce, the Judge could award the assets to your spouse instead.
Always consult with your experienced divorce attorney before making any financial moves to ensure that your plan does not “backfire” and harm you in the long run.
Many spouses in a divorce erroneously assume that “being the first one to the bank” is beneficial. But emptying a bank account, just dipping into it more than usual, or making big purchases in the weeks and months before your divorce could be detrimental.
Experienced divorce attorneys recommend that you keep all financial matters transparent with your spouse, by continuing to use your accounts (individual & joint) the way you usually do. Otherwise you could actually end up being penalized in your divorce settlement.
Know When to Get a Lawyer’s Help in a Divorce
Whether your divorce is amicable or adversarial – and your finances are simple or complex – only an experienced Oakland County divorce lawyer can effectively help you sort through the separation of your finances. When necessary your attorney may also recommend employing the services of an accountant, a certified financial analyst, and in cases of self-employment a business valuation expert.
An experienced divorce lawyer will know how the laws regarding division of money and property, and assignment of child support and alimony, will apply to your unique situation. And in divorces where the financial decisions are more about dividing debts than assets, an attorney can ensure that you are not unfairly saddled with unfair financial obligations.